In the advanced settings of a virtual device in Android Studio 1.0.2 AVD Manager, there is actually a checkbox that allows to enable keyboard input without editing the config.ini by hand.
Tools → Android → AVD Manager → pencil icon (shown in picture) → Show Advanced Settings (scroll to bottom) → Enable Keyboard Input
Open and Navigate to Tools → Android → AVD Manager → Edit -> pencil icon)
Click on Show Advanced settings and scroll down and you can see the option
Enable Keyboard input (example second image) Check that box and Click on Finish.